Common Agricultural Policy (EUC Report)

My Lords, I congratulate the committee on producing an excellent report. I can tell by the amount of detail that an awful lot of hard work went into it. The health check has come at the right moment for this debate. This is a time of great turbulence for food production, with price hikes and food riots, while the discrepancies between supply and demand have sent the price of food upwards. This follows a long period of stable low prices in the UK and I believe the report has to be read in that context. I can well remember saying in lectures 30 years ago that food represented 27 per cent of the disposable income of an average family. Add to that the 33 per cent of income that went on housing and you had already got rid of 60 per cent of disposable income. Until the end of 2007, food purchases represented only 11 per cent of income and there was a steady increase in the purchase of luxuries such as holidays. We have now had a reality check. Over the past 18 months, Tesco alone has made a profit of £2.5 billion, £1 billion more than the entire UK agriculture industry. Those days are behind us as well. We have had a situation where farmers had poor profitability, particularly in the uplands where their incomes have been lower than the national minimum wage. There is a huge dynamic change going on. Now everyone else, other than just farmers and agriculturists, is starting to talk about food security. In the past 10 years food security in the UK has decreased by 16 per cent, from 86 per cent to 70 per cent. At least a quarter of our food is imported, so what impact will that have on our balance of payments? In the past lean 20 years many farmers have said, ““Thank God for the CAP””—we have certainly said it in Wales—and ““Thank God for the French farmers””, who have ensured that all EU farmers have had a positive income. The UK Treasury would never have given us that kind of support. I am afraid that that is a fact of life. Why is it that complaints about high food prices do not always focus on the commodity markets, for example, where doubtless at this very moment bets are being placed on the future price of wheat—which has doubled in the past 12 months—and impacting on the current sale price? That is having an effect, too, on the ability of the poor to buy food. A lot of factors are involved in this which cannot be ignored and the report should be set against that background. It is like an academic exercise in some respects: ““Reform of the CAP—discuss””. We could still be doing that at midnight, so I shall try to get through only some of it. I partly blame the Treasury for some of the misdemeanours that have occurred in the agricultural industry. It is interesting to note that only last week the Chancellor said that he felt that direct subsidies should be scrapped. Unfortunately he did not put that remark into context and some journalists interpreted that as if it was going to happen tomorrow. Fortunately the report, and even the Government’s response to it, does not reflect that kind of immediate way of dealing with the problems. We have the report, the Government’s response and the EU proposals. Unfortunately, I have time to look at only one or two issues. As an ex-member of the committee, I am not going to be a good boy because I do not agree with some of the things that it says. Pillar 1—the single farm payment—has, in the context of agricultural economics, many different interpretations. For those of us who have studied agricultural economics, the three classic principles are land, labour and capital. On the land issue, grade 1 agricultural land has many options; you can grow as many as 25 to 30 different crops, for example, with differing values. Even grade 2 or grade 3 land will do that, but with grade 4 land you have fewer options, and when you get to grade 5, all you are left with is beef and sheep. That has to be recognised in any CAP policy. That brings me to the issue of area payments versus historic payments. Does one size really fit all? Probably the greatest epoch-making agricultural legislation in the UK, the Agriculture Act 1947, was headed by Tom Williams, a West Yorkshire miner who saw the need for food security and for designating land as less favoured areas—which, in socio-economic terms, were poorly off—and the Treasury in those days was willing to fund that kind of policy. The socioeconomic needs of the less favoured areas are important, in my view. When the chairman, the noble Lord, Lord Sewel, quotes the FAO chairman—or director, I cannot remember which—about the £130 billion shortfall, we must not forget that the Americans are putting $200 billion into agricultural support in the States, which is distorting the whole of world trade, yet they are going on about the WTO and all the rules it breaks. We must be careful about where we put the blame when the EU is reducing its budget on agricultural expenditure. I agree with what the noble Lord has said. We certainly need to scrap milk quotas, set-aside and export refunds, which are a horrific distortion of trade and impact badly on third-world countries. Historic payments, however, are a totally different situation. When we try to apply area payments right across the UK, for example, in the form of the CAP, my concern is that on that basis land may be traded as a commodity because of the area payments that are on that land. I can see that as a possibility. On the other hand, if you look at historic payments as they are in Scotland, Wales and Northern Ireland, you find 80 per cent less favoured areas—80 per cent of areas that can really produce only beef or sheep. There are hills that have had a certain number of hefted stock every year for the past 200 years. That is real history, isn’t it? We cannot ignore the less favoured areas, and I am pleased to see that in its summary the committee has paid due concern to the poorer areas in the Common Market, in the EU. They need support. What kind of support do they need? I am alarmed by the Scottish evidence here that a 5 per cent reduction in modulation—I am quoting this off the top of my head, so I may not be close enough in accuracy—results in a 19 per cent reduction in farm income. That is a graphic illustration of the importance of historic payments. They may have to be phased out over a long period, but if that is done then something has to replace them. The income streams and disposable incomes in the uplands need to receive support from Pillar 2, as the report rightly says, because we need diversification from those income streams. Very often the farm income is supplying only 50 per cent of the net disposable income of the family, and the rest is coming from elsewhere. That has to be encouraged. Pillar 2 is undoubtedly the way to do it, but I have reservations about whether the British Treasury in matched funding will have the resolve to support rural areas in that way, not just in Britain but throughout the European Community.